Withholding agent’s declaration
Under the statute, the withholding agent may also opt to either not withhold or withhold the tax at a preferential rate, provided that the withholding agent submits a relevant declaration.
If the declaration turns out to be untrue, the withholding agent fails to perform the required verification or the verification undertaken by the withholding agent is not adequate to the nature and scale of business, then the tax authority will assess an additional burden of 10% of the taxable base of the payments. An entity’s manager who has signed a false statement may be subject to fiscal and criminal liability (either a monetary fine of up to 720 day-fine units or imprisonment, or both).
The lawmakers have also introduced an option to request an opinion on the tax exemption which makes the preferences available. However, the opinion is available in respect of certain payments only (such as royalties, interest) and may take even 6 months to arrive.
Due care obligation
Moreover, we would like to emphasise that the basic requirements imposed on domestic entities is to exercise due care in making payments, identifying the correct withholding tax rate and submitting the declaration. However, tax laws do not define this term, so the burden of proof of the due care in actions rests with the withholding agent. In this context, it makes sense to have a written procedure for transactions with foreign entities which, if observed, will substantiate due care. Furthermore, you may find it useful to have your business partners’ statements confirming their status and additional documentation to confirm that the statements are true.
The due care obligation has applied to all entities since 1 January 2019 because it has not been deferred by the regulation of the Minister of Finance.
Due to the complexity and generality of the new regulations we recommend gathering as much documentation as possible in respect of your transactions and implementing business partner verification procedures.
If you need support in working out withholding tax procedures, Rödl & Partner’s advisers are at your service.